Friday, February 27, 2009

Well, he's going for it all. Health Care. Cap and Trade. Education. All the things that I have believed essential to a sustainable world and United States going forward.

So why do I have this sinking feeling? 10 years ago, 5 years ago even, we could have afforded these essential items. But now, can we?

A couple items. Even Paul Krugman, the preeminent liberal economist, has some concerns about the debt this will put us in:

That wouldn’t be an extremely high debt level by international standards, but it would be the deepest in debt America has been since the years immediately following World War II. And it would leave us with considerably reduced room for maneuver if another crisis comes along.

I see in Table 8.8 of the budget that the White House assumes real GDP growth of 3.2% in 2010, 4.0% in 2011, 4.6% in 2012 and 4.2% in 2013. I leave it to your imagination what the deficits would be if they had made more realistic assumptions.

I, for one, thing that kind of growth will never happen in the next four years. Its la-la land.

So I don't know. Health care reform, education reform, and cap and trade all have to happen. They have to. But it seems like we are going to have to cut something else. Something big. But what can that be, at a time of economic crisis?

I remember after the stimulus bill passed, a reporter asked Obama what he would have done differently. He said something like "maybe I should have started out the bill with no tax cuts, and then let the republicans put in the tax cuts so they could claim victory on that." My hope is that he is pursuing that strategy with the budget. But its going to take a lot of good work by Congress. Pelosi and the republicans are going to have to work together and compromise.

One of the NYT crack economics reporters, David Leonhardt, writes today:

The budget that President Obama proposed on Thursday is nothing less than an attempt to end a three-decade era of economic policy dominated by the ideas of Ronald Reagan and his supporters.More than anything else, the proposals seek to reverse the rapid increase in economic inequality over the last 30 years. They do so first by rewriting the tax code and, over the longer term, by trying to solve some big causes of the middle-class income slowdown, like high medical costs and slowing educational gains.As I wrote during the campaign, Obama would spell the defeat of the era of Reagan, not just John McCain. If it works, this will be one of the most important things that Obama does. If Conservatism is basically government by and for the wealthy, as I think it is, then Liberalism as exemplified by Obama is true democracy, with everyone sharing in the fruits of our modern prosperity.

The history of the United States economy over the last 70 years can be roughly divided into two periods: the decades immediately after World War II, when inequality plummeted, and the past three decades, when global economic forces and government policies caused it to soar. Mr. Obama is setting out to begin a third period that looks more like the first than the second.

That agenda starts with taxes. Over the last three decades, the pretax incomes of the wealthiest households have risen far more than they have for other households, while the tax rates for top earners have fallen more than they have for others, according to the Congressional Budget Office.As a result, the average post-tax income of the top 1 percent of households has jumped by roughly $1 million since 1979, adjusted for inflation, to $1.4 million. Pay for most families has risen only slightly faster than inflation.

Before becoming Mr. Obama’s top economic adviser, Lawrence H. Summers liked to tell a hypothetical story to distill the trend. The increase in inequality, Mr. Summers would say, meant that each family in the bottom 80 percent of the income distribution was effectively sending a $10,000 check, every year, to the top 1 percent of earners.

Thursday, February 26, 2009

The more I read, the more I see the sense of what Yglesias is saying and the more inadequate Tim Geithner seems. Has any serious communicator explained the administration's policy effectively? I'm still waiting.

There is a lucid, if horrifying, description of the shadow banking system that has largely caused our financial crisis on the Diane Rehm Radio Show at the 11:00 AM slot here (click on the Real Audio or Windows Media Player link beside the description of the program.)

Whenever a president gives a major address, like the one Barack Obama delivered to Congress this week, the opposition party delivers a rejoinder. Which American citizens always ignore. Louisiana Gov. Bobby Jindal’s speech was, therefore, a kind of triumph. So bad, people actually paid attention!We will pass over Jindal’s delivery, which sounded a little like a junior high schooler’s entry into the Chamber of Commerce “I Speak for Fiscal Restraint” contest. The content was the thing: a message to the nation that the Republicans were not going to have anything important or useful to say about the current economic crisis.

She also makes a good point about stimulus waste:

The waste argument is a perpetual winner because there will always be some. Years ago, when I was a reporter, I remember getting a call from a woman in the Bronx who was screaming: “They’re over on Moshulu Parkway planting dead trees!” Sure enough, a city work crew was digging holes along the side of the street and carefully sticking in brown and dried-up pieces of foliage. The men claimed the trees had simply lost their leaves for the winter — an explanation somewhat undermined by the fact that they were evergreens.

I’m telling you this because on Tuesday I was talking with a high-ranking Obama administration official about the stimulus plan. “There will be a dead tree planted, figuratively speaking,” he said somberly. “That will happen.”

How could it not? Much of the stimulus money is being channeled through state and local governments, through tens of thousands of governors, mayors, county executives, transportation commissioners, parks superintendents and so on. Try to imagine the person in that pyramid with the lowest I.Q., and you’ll understand that there’s a dead-tree planter hidden in there somewhere.

Before this correction is over, the Dow will trade below 5,000. That has been our prediction for the last 10 years. Maybe we were a little early. But we’re sticking with it.Besides, stocks have been a bad bet for the last 12 years. They’re now back to ’97 levels…meaning, investors have made nothing for a dozen years. Stocks for the long run? How long do you have to wait?

And now, the stock market is breaking down…again. Dow Theory has given a Bear Market Signal. What that means, exactly, we don’t know. Stocks will go down until they stop going down, we guess.I don't know if he right, but he's done better than all those blowhards at CNBC.

Wednesday, February 25, 2009

“No other country can substitute for the U.S.,” a senior Korean official remarked to me. “The U.S. is still No. 1 in military, No. 1 in economy, No. 1 in promoting human rights and No. 1 in idealism. Only the U.S. can lead the world. No other country can. China can’t. The E.U. is too divided, and Europe is militarily far behind the U.S. So it is only the United States ... We have never had a more unipolar world than we have today.”Honestly, those of us predicting the economic crisis we are in did not expect this. It was not clear the rest of the world would fare even worse than us.

It’s the job you thought you’d retire from but now have lost; the business you built your dreams upon that’s now hanging by a thread; the college acceptance letter your child had to put back in the envelope.

Obama really showed his writer's touch with that last line. Very poetic.

In other words, we have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election....And all the while, critical debates and difficult decisions were put off for some other time on some other day.

Well that day of reckoning has arrived, and the time to take charge of our future is here.

Obama is focusing on the long term. Here, Obama begins to show us that he is marrying liberalism with a sense of responsibility. That is his greatest strength, and that lack of responsibility has been liberalism's greatest weakness, until now.

That is why I have asked Vice President Biden to lead a tough, unprecedented oversight effort – because nobody messes with Joe.

I love the way Obama can transition from humor to seriousness within a single paragraph. When was the last time you felt inspiration, laughter, and seriousness all within a state of the union address?

I understand that when the last administration asked this Congress to provide assistance for struggling banks, Democrats and Republicans alike were infuriated by the mismanagement and results that followed. So were the American taxpayers. So was I.

So I know how unpopular it is to be seen as helping banks right now, especially when everyone is suffering in part from their bad decisions. I promise you – I get it.

But I also know that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment. My job – our job – is to solve the problem. Our job is to govern with a sense of responsibility.

Obama showed great honesty here, as well as great common sense. "We cannot afford to govern out of anger."

In each case, government didn’t supplant private enterprise; it catalyzed private enterprise. It created the conditions for thousands of entrepreneurs and new businesses to adapt and to thrive.

Exactly right. Its a nuanced point, but absolutely crucial, and not said enough.

It begins with energy.

I am ecstatic that Obama gets this.

But we are committed to the goal of a re-tooled, re-imagined auto industry that can compete and win. Millions of jobs depend on it. Scores of communities depend on it. And I believe the nation that invented the automobile cannot walk away from it.

This will not make Kunstler happy.

I think about Leonard Abess, the bank president from Miami who reportedly cashed out of his company, took a $60 million bonus, and gave it out to all 399 people who worked for him, plus another 72 who used to work for him. He didn’t tell anyone, but when the local newspaper found out, he simply said, ''I knew some of these people since I was 7 years old. I didn't feel right getting the money myself.”

The focus on a banker who actually did the right thing, at a time when bankers are getting crucified, was Classic Obama.

We are not quitters.

An interesting way to close. By itself, its not a very remarkable line. But borrowed from a poor black girl from South Carolina who must have been having the experience of a lifetime sitting next to Michelle Obama and hearing herself quoted by the President, I found it very moving.

To sum up, I have long been an economic pessimist, and I generally consider myself to be quite the cynic. But I will admit, after watching that speech, the thought crept into my brain, "hey, maybe things are gonna turn around faster than I thought. Barack's got this." The speech, in my opinion, was that good. And not because he glossed over our problems, but because he admitted them candidly but was able to show that solutions are out there if we will only be brave enough to struggle for them.

I still pinch myself and can't believe this man is president. We are lucky.

p.s. I guarantee you the Republicans are crapping themselves right now.

Tuesday, February 24, 2009

David Brooks of the NYT is one of the few conservatives whose insights I truly appreciate and find stimulating. His column today was no exception:

When I was a freshman in college, I was assigned “Reflections on the Revolution in France” by Edmund Burke. I loathed the book. Burke argued that each individual’s private stock of reason is small and that political decisions should be guided by the accumulated wisdom of the ages. Change is necessary, Burke continued, but it should be gradual, not disruptive. For a young democratic socialist, hoping to help begin the world anew, this seemed like a reactionary retreat into passivity.Over the years, I have come to see that Burke had a point. The political history of the 20th century is the history of social-engineering projects executed by well-intentioned people that began well and ended badly. There were big errors like communism, but also lesser ones, like a Vietnam War designed by the best and the brightest, urban renewal efforts that decimated neighborhoods, welfare policies that had the unintended effect of weakening families and development programs that left a string of white elephant projects across the world.These experiences drove me toward the crooked timber school of public philosophy: Michael Oakeshott, Isaiah Berlin, Edward Banfield, Reinhold Niebuhr, Friedrich Hayek, Clinton Rossiter and George Orwell. These writers — some left, some right — had a sense of epistemological modesty. They knew how little we can know. They understood that we are strangers to ourselves and society is an immeasurably complex organism. They tended to be skeptical of technocratic, rationalist planning and suspicious of schemes to reorganize society from the top down.Before long, I was no longer a liberal. Liberals are more optimistic about the capacity of individual reason and the government’s ability to execute transformational change. They have more faith in the power of social science, macroeconomic models and 10-point programs.

That is simply and even elegantly put, and I agree with much of it. I too became 'a liberal mugged by reality', as neo-conservatives are wont to call themselves, for about 15 years, during the 80s and 90s. I have a lot of the books of the intellectuals he points to in the third paragraph.

But I am not where Brooks is today (a Republican conservative). In the late 90s, I changed, after becoming convinced that global warming was for real. That in turn literally forced me to rethink everything.

As a result, in the following years, I not only opposed the Iraqi War for what turned out to be good reasons, but also predicted our current economic crisis years ago. Both of these I could do, one, because I paid attention and followed the evidence where it led, and two, because I wasn't blinded by ideology of either the left or right.

In his column, Brooks expresses admiration for Obama (very atypical of Republican conservatives!), yet is fearful that his liberal worldview will cause his plans to fail because they are not 'epistologically modest.' I guess where I differ with Brooks is that I think his conservatism, which has been regnant for the last 30 years, has really botched things up, revealing its fundamental weakness as a worldview. And now it is left to an intelligent, centrist pragmatist (with liberal leanings for sure) to come in and make all the drastic repairs and reforms that are needed if we were going to make it through the 21st century.

Actually, I think he knows that, which is why he seems to be really hoping Obama succeeds. But then he ends with this rather absurd statement: "If they mostly fail, then liberalism will suffer a grievous blow, and conservatives will be called upon to restore order and sanity." Who exactly are these conservatives? Supporters of Bush and Cheney, who have just about wrecked our country? The conservatism of which Brooks speaks doesn't seem to exist anymore, if it ever did. The 'conservatism' of the last thirty years turned out to be conservatism of, by, and for the wealthy, with little concern for stability, gradual change, or even true order. It is an ideology of plutocracy.Order and sanity? That is what Obama has brought back to the White House, America, and, hopefully, the world.

Some financial-sector stocks perked up yesterday on reports that the Treasury was "open" to a proposal from Citigroup that the Treasury effectively take more ownership of the bank but stop short of full nationalization. It's understandable that investors would be heartened by the prospect that the money they already have in Citigroup wouldn't be completely wiped out by a government takeover. But I think my reaction is closer to that of the average citizen: What standing does Citigroup have to propose anything?Shouldn't the executives of Citigroup, Bank of America and much of the rest of the nation's financial establishment just say they're sorry, sit down in the corner and shut up? Taxpayers have already spent hundreds of billions of dollars bailing out Wall Street, not to mention the trillions more we've put at risk in various kinds of backstop guarantees. It would be nice to hear sincere apologies and expressions of gratitude. "Have we got a deal for you" is pushing it.

The biggest casualty of the crisis in Eastern Europe could be unfettered capitalism, ardently embraced by countries that came out of communism. Thousands of people have taken to the streets in Poland, Latvia, Bulgaria and elsewhere, angry that their social safety net is tattered. In the Czech Republic, there was palpable resentment this week that Czechs were being punished for economic transgressions committed elsewhere.

Tomas Sedlacek, who served as an economic adviser to former President Vaclav Havel, noted that in the 1990s, the West lectured the former Eastern bloc about the need to privatize and deregulate. Now, the message emanating from Washington is to nationalize and to regulate. "This crisis has turned the world upside down,” he said. “People here who argue that open markets are the solution to everything are no longer being taken as seriously.”

Monday, February 23, 2009

Question: How can Obama spend so much money now, and then turn around and talk about controlling spending in the future? Isn't this a contradiction?

Answer: Think of it this way. When a person comes into the emergency room with a heart attack, you don't lecture him about his diet, his exercise habits, his smoking. Time enough for that in a month or so. First of all, you shock his heart and get it beating again.

Yes, it should have been obvious before, but now that a seemingly endless parade of bankers have made fortunes while gutting their institutions and sinking the economy, we’re finally having our eureka moment.

Wealth in America increasingly comes not as the proverbial reward of the “free market,” but from rigged compensation systems that reward mediocrity or outright failure. American capitalism is a meritocracy, they’ve always been told, a place where people basically end up economically where they deserve to. Yet you can’t open the paper nowadays without seeing screaming evidence that this notion is a fraud. Does former CEO Kerry Killinger deserve to retire to an island with $100 million after destroying Washington Mutual? Did Bob Rubin deserve his $115 million for making Citigroup a ward of the state? And what about the several thousand less-prominent geniuses across Wall Street who made off with less loot (but tens of millions nonetheless) peddling mortgage-related securities that produced illusory profits?

Michelle Cottle of the New Republic writes about what makes Obama cool, and gives some credit to his assistant, his "body man", Reggie Love. Love, of course, is the former Duke basketball player who at the age of 27 has since gone on to become one of Obama's closest aides:

But as Obama is surely aware, hanging with Love only boosts his own cool quotient. Every story about Obama banging in the paint alongside Love--not to mention some of Love's pals and former teammates, at least one of whom is now in the NBA--is a feather in the 47-year-old president's virility cap. Shrewdly, Team Obama has been liberal with its media access to Love. In multiple profiles of the infamously hip body man (he received A-1 treatment in the Times), we have learned, among other things, about Love's romantic preferences (a basic knowledge of sports is required), his late-night socializing (on the trail, he was the guy everyone wanted to party with), his tattoo ("MY WORD, MY BOND, MY BOYZ, MY BLOOD"), his enduring affinity for beer pong, and, of course, his role in helping his boss keep up with the hip kids. (It was Love who introduced Obama to the fist bump, Love who gave Obama an iPod for his forty-sixth birthday, and Love who loaded said iPod with Jay-Z and Lil Wayne.)

The fact that Obama chose a former Duke player rather than a Carolina player is probably my biggest complaint with the man. None of that stimulus money better get funneled over to Durham!

Paul Krugman explains what nationalization means--temporary takeover and restructuring--and why it is necessary now. The FDIC is doing it to two smaller banks a day already, just not the big ones. It is not socialism, but a sensible capitalism, doing the necessary repair work on private institutions that have made big mistakes and self-imploded.

With losses mounting at the nation’s largest financial institutions, years of earnings have been erased, investors have lost billions, thousands of employees have been let go, and taxpayers have been tapped to rescue the financial system. But executives who helped set the problems in motion, or ignored them as they mounted, are still doing fine. Humbled, perhaps, but well paid for their anguish.Executives at seven major financial institutions that have collapsed, were sold at distressed prices or are in deep to the taxpayer received $464 million in performance pay since 2005, according to an analysis performed for The New York Times. Almost half of that consisted of cash compensation.

Yet these firms have reported losses of $107 billion since 2007, a result of their own missteps and the ensuing economic downturn. And $740 billion in stock market value has been lost since these companies’ shares peaked in 2007, just before the housing bubble burst.Against that landscape, a growing chorus is demanding that executive compensation snared shortly before problems emerged be given back.

“There is a line that separates fair compensation from stealing from shareholders,” said Frederick E. Rowe, a money manager in Dallas and a founder of Investors for Director Accountability, a nonprofit group. “When managements ignore that line or can’t see it, then hell, yes, they should be required to give the money back.”I wholeheartedly agree.

I wonder with the looming nationalization of Bank of America, and the already-accomplished demise of Wachovia, what will happen to Charlotte, the home base of these giants? It appears to be headed for some tough times.

As a result of the Wall Street crisis, New York City is also in deep trouble:

“We’re not looking to recreate what was here before,” Mr. Lieber said. “We’re acknowledging the changes and looking to diversify within financial services and outside financial services.”That admission, as much as any other, highlights just how significantly the thinking about Wall Street has changed in a matter of months.

Early last year, city officials were still fretting about the rise of London’s financial industry and the competitive threat it posed to New York. Now they are worried about filling a huge hole in the city’s economy while trying to retain thousands of laid-off financiers before they scatter across the globe.

They now forecast that the financial services sector that powered the city’s prosperity will shed 65,000 jobs as a result of the financial crisis. Almost half of them will come from the highest-paying pursuits like investment banking and the sales and trading of stocks and bonds, according to an analysis the city commissioned from the Boston Consulting Group.

It looks like it's the top 20 banks that are considered 'too big to fail:'

The Obama administration will begin taking a hard look at the financial condition of the country’s 20 biggest banks this week to judge whether they could hold up even if the downturn worsens further than policy makers already expect.Bank shares were pummeled last week, partly because of rumors that the government might nationalize some of the banks. Officials consider many of the top 20 banks “too big to fail.”Still, the big banks say they remain relatively healthy and that, with time and support from the government, they will regain their footing. But many economists, Wall Street analysts and even some bank executives contend that some of the banks are already effectively insolvent. Even though banks have reported billions of dollars of losses from bad loans, these critics say, the major institutions still carry trillions of dollars in additional toxic assets and are too damaged to resume normal lending.

This camp says it would be best to nationalize some of them now — with the government wiping out shareholders and taking over the operation of some institutions, at least temporarily — rather than to drag out the process while the economy spirals further downward.So these high paid bank CEOs think they're indispensible? After getting themselves into this kind of mess? Fire them all (I'm sorry, I mean let them retire!) and bring up some younger executives who will be more sensible and cautious and will accept lower pay just to be gainfully employed.

More than 70 United States military advisers and technical specialists are secretly working in Pakistan to help its armed forces battle Al Qaeda and the Taliban in the country’s lawless tribal areas, American military officials said. Well, I guess they're not secret anymore. Then this:

Officials from both Pakistan and the United States agreed to disclose some details about the American military advisers and the enhanced intelligence sharing to help dispel impressions that the missile strikes were thwarting broader efforts to combat a common enemy. They spoke on condition of anonymity, citing the increasingly powerful anti-American segment of the Pakistani population. Despite the political hazards for Islamabad, the American effort is beginning to pay dividends. A new Pakistani commando unit within the Frontier Corps paramilitary force has used information from the Central Intelligence Agency and other sources to kill or capture as many as 60 militants in the past seven months, including at least five high-ranking commanders, a senior Pakistani military official said.I'm really glad that the Obama administration is doing a full review of our policy in that region. Because this just feels like really high risk stuff to me. But Pakistan is clearly a lot more crucial in this part of the world than Vietnam ever was, what with its nuclear weapons, that cannot fall into the hands of Islamic, Al-Qaeda radicals. Ever.

Nature's way of hinting that something truly creepy may be up is when both Paul Volcker and George Soros both declare on the same day that the economic landscape is looking darker than the Great Depression.....an awful lot of reasonable people have begun to ask whether President Obama is a stooge of whatever remains of Wall Street, with Citigroup and Goldman Sachs's puppeteer, Robert Rubin, pulling strings behind an arras in the Oval Office. Personally, I doubt it, but it is still a little hard to understand what the President is up to.The sad truth is that banking has become a Chinese fire drill -- a frantic act of futility -- as insolvent companies persist in covering up their losses in order to avoid the counter-party hell of credit default swaps that would ring the world's "game over" bell. This can only go on so long. All the chatter about "nationalizing" the banks really boils down to what kind of bankruptcy work-out will they be put through, how destructive will the process be, and how much of the pain can be shoved forward in time to people now in diapers and their descendants.No good, in fact, will come of a campaign to sustain the unsustainable, which is exactly what the Obama program is starting to look like. In the folder marked "unsustainable" you can file most of the artifacts, usufructs, habits, and expectations of recent American life: suburban living, credit-card spending, Happy Motoring, vacations in Las Vegas, college education for the masses, and cheap food among them. All these things are over.

It's quite likely that Obama has simply not accepted all of Kunstler's assumptions about the future, and therefore won't act like he would like. After all, he's trying to act like Lincoln and Roosevelt, not a 'small-is-beautiful' prophet.

No one who believes like Kunstler does could ever get elected to the local school board, let alone the Presidency. That doesn't mean James is wrong necessarily, but if he is a true prophet, well, then let him do his thing, and let Obama do his, and reality will use both of them to move into the future.

Sunday, February 22, 2009

Obama in his first month has made clear his style in foreign policy: He plays the hand he wishes he had rather than the one he was dealt. He relies on skill -- and a determined optimism that he believes will help shape the outcome -- to make up for low cards.

Russia provides the clearest example. Obama has chosen to put high priority and a positive cast on U.S.-Russian relations in intensifying private contacts with President Dmitry Medvedev, who telephoned Obama less than a week after the inauguration to say that two "young, new presidents" should be able to work together. Medvedev followed up with an effusive eight-page letter and a second substantive telephone call, according to several senior officials here and abroad. This is so good to hear. After a few of the comments that I heard during the campaign, this comes as a welcome relief.

Eric Holder, who showed precious little bravery in standing up to Clinton on a pardon for the scoundrel Marc Rich, is wrong. We have just inaugurated a black president who installed a black attorney general.We need leaders to help us through our crises, not provide us with crude evaluations of our character. And we don’t need sermons from liberal virtuecrats, anymore than from conservative virtuecrats.

In the middle of all the Heimlich maneuvers required now — for the economy, Iran, Pakistan, Afghanistan, health care, the environment and education — we don’t need a Jackson/Sharpton-style lecture on race. Barack Obama’s election was supposed to get us past that.

Obama’s toughest political problem may not be coping with the increasingly marginalized G.O.P. but with an America-in-denial that must hear warning signs repeatedly, for months and sometimes years, before believing the wolf is actually at the door.Denial may be one of the biggest vices in America, far worse than gambling in Vegas.

Saturday, February 21, 2009

Here is a very good interview with the current superstar economist Nouriel Roubini, who forecast the current collapse, on the issue of nationalizing the banks.

So, will the highest level of government be receptive to the bank-nationalization idea? "I think it will," Mr. Roubini says, unhesitatingly. "People like Graham and Greenspan have already given their explicit blessing. This gives Obama cover." And how long will it be before the administration goes in formally for nationalization? "I think that we're going to see the policy adopted in the next few months . . . in six months or so."

That long? I ask. "Six months from now," he replies, "even firms that today look solvent are going to look insolvent. Most of the major banks -- almost all of them -- are going to look insolvent. In which case, if you take them all over all at once, you cause less damage than if you would if you took over a couple now, and created so much confusion and panic and nervousness.

Renowned investor George Soros said on Friday the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis.Soros said the turbulence is actually more severe than during the Great Depression, comparing the current situation to the demise of the Soviet Union.

He said the bankruptcy of Lehman Brothers in September marked a turning point in the functioning of the market system. "We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."

Instead of dancing around the problem, can’t we just have the government take over the impacted banks, hire all the unemployed bond traders to figure out how much the toxic assets are worth, dispose of them for whatever the market will bear and then sell the newly reconstituted banks back to private investors? That was Sweden’s approach, and it worked rather well.

The answer is that Americans will never do anything that Sweden does. Never have, never will. Don’t argue with me. It’s a rule. We're just not that smart.

Declaring “we hope you won’t make the same mistakes we made,” Secretary of State Hillary Rodham Clinton invited China to join the United States in an ambitious effort to curb greenhouse gases, as she toured an energy-efficient power plant in Beijing on Saturday.The gas-fired power plant, which uses sophisticated turbines made by General Electric, is nearly twice as efficient as the coal-fired plants that supply much of China’s electricity, and helped vault China past the United States as the world’s leading emitter of carbon dioxide.

The Obama administration hopes to make climate change the centerpiece of a broader, more vigorous engagement with China. For Mrs. Clinton, the two-day stop in Beijing at the end of a week-long Asian tour, represents an effort to put her own stamp on a relationship that was dominated by the Treasury Department in the latter years of the Bush administration.Mrs. Clinton’s visit to the Taiyanggong Thermal Power Plant allowed her to steer the focus back to climate change. She introduced her new special envoy for climate change, Todd Stern, who noted that the United States and China account for 40 percent of the world’s emissions.

Another of the many governments that will fall because of the failings of neo-liberal globalization:

Latvia’s center-right coalition government collapsed Friday, a victim of the country’s growing economic and political turmoil. It was the second European government, after Iceland, to disintegrate because of the international financial crisis.

The government in Riga, faced with forecasts of a severe drop in the economy this year, was the first in Eastern Europe to succumb to turmoil caused by the crisis. Its collapse rounded out a week in which worries about feeble investment and output and shaky banks in Central and Eastern Europe coursed through international markets.

Benjamin Netanyahu, the Likud Party leader chosen Friday to form Israel’s next government, likes to tell a story about his meeting last summer in Jerusalem with President Obama, who was then still the Democratic candidate. As it was ending Mr. Obama pulled Mr. Netanyahu aside from their aides to a corner of the room in the King David Hotel.

“You and I have a lot in common,” Mr. Obama said, according to Mr. Netanyahu’s account. “I started on the left and moved to the center. You started on the right and moved to the center. We are both pragmatists who like to get things done.”

Friday, February 20, 2009

I want to marry Obama Press Secretary Robert Gibbs. If you haven't seen it, at the White House Daily Briefing he delivered an epic smackdown to CNBC's Rick Santelli, who had on live TV from the Chicago Merchantile Exchange called those getting helped by Obama's foreclosure assistance plan "losers". Gibbs' best line let everyone know who the real "losers" are, and we all know that multimillionaire derivative traders like, say, Rick Santellil are ahead of the average homeowner in that line. The days when Democratic leaders either rolled or just whined about retarded things conservatives say are over. And I am loving it!!

Bill Bonner writes in the Daily Reckoning about the Depression effect on vices, which seems to follow Gerson's earlier report on the rediscovery of virtue:

Even vice is getting gripped by the downturn. Yes, first we get a report that Playboy Magazine is taking such losses that it may be forced to sell out.Then, a report circulates that the bordellos of Las Vegas have fallen on soft times. The truckers and tourists who used to frequent them no longer have the dough. The poor girls just sit around...waiting for the phone to ring.And now cometh from England news that cocaine has fallen in price. It's now cheaper than beer, says the Telegraph. Either the supply has increased, or the demand has fallen; we don't know which. "What's the world coming to when cocaine is cheaper than beer or wine," writes a friend. "Looks like we'll have to change our vices, to economize..."But here at The Daily Reckoning, we remain loyal to the old-fashioned vices. We're not going to give up alcohol just because it's become more expensive than hard drugs. We'll stick to booze, thank you. Besides, a man who isn't faithful to his vices is prey to every bad habit that comes along. You can't trust him.

Talking Points Memo airs a view that echoes what I said earlier this week about how Obama has played the bank nationalization situation:

Now that Dodd has publicly mooted the notion, it's probably picked up too much momentum to be stopped. What was politically unfeasible just months ago is now inevitable. By the time the government steps in, it's as likely to be met with as much relief as opposition.

This way, Obama is seen as the guy who saved the banking industry, not the guy who took it over against their objections. TPM also notes the effect of the administration's mild statements on the issue:

Gibbs said, "This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government. That's been our belief for quite some time, and we continue to have that."

I'd be curious what others think. But when I heard this, this struck me as a pretty mild response, given how rapidly people seem to be moving toward the belief that these banks are at their last gasps. It's not completely on point for the question at hand and it refers to preferences not what may actually happen.

My guess for what eventually happens: Obama comes out with a statement that says "we are not nationalizing the banks. We are taking them into receivership. This is different, because once the banks have been restructured they will be returned to the private sector."

Michael Gerson of the Wa Po writes about the virtues that the current depression might engender:

But times of economic stress, it appears, can also be times of cultural renewal. "One reasonable hypothesis," argues James Q. Wilson, "is that the Depression pulled families together, and this cohesion inhibited crime." Many Americans who struggled through the Depression adopted a set of moral and economic habits such as thrift, family commitment, savings and modest consumption that lasted through their lifetimes -- and that have decayed in our own. The Depression generation controlled the things it could control -- including its own consumption and character.

We see hints of this type of reaction to our current recession, which has such clearly moral causes -- the burst of a bubble inflated by irresponsible debt, consumerism and unaccountable risk-taking. During an economic crisis, Americans return to a language of morality. Perhaps excess and recklessness are vices that deserve social stigma. Perhaps frugality and prudence are personal virtues as well as practices that prevent economic collapse. Perhaps there is a distinction between securing our needs and being dominated by our wants. It has always been a quiet fear of capitalists that the success of free markets would eventually undermine the moral basis for free markets -- that decadent prosperity would dissolve values such as prudence and delayed gratification. "Capitalism," argued economist Joseph Schumpeter, "creates a critical frame of mind which, after having destroyed the moral authority of so many other institutions, in the end turns against its own."

But capitalism may be self-correcting in this area, as it is in many others. A recession causes suffering that can overwhelm hope. It can also lead to the rediscovery of virtues that make sustained prosperity possible -- and that add nonmaterial richness to our lives. Sometimes grace can arrive through an unexpected door.

I said something like that that in a sermon about six months ago here.

Thursday, February 19, 2009

The curtain is being peeled back on the infamous secrecy of Swiss banks. The largest bank in Switzerland, UBS, agreed Wednesday to reveal the names of wealthy Americans whom the authorities suspect of using offshore accounts to evade taxes.

The change in policy is the result of UBS' admitted role in conspiring to defraud the Internal Revenue Service. As part of the agreement, the bank will pay $780 million in damages, and also close all offshore accounts of its American clients.

It is not clear how many names will be divulged, but the Feds have been looking into roughly 19,000 accounts, according to the New York Times.

The deal could mark the end of Swiss banking as we know it, as many offshore clients may no longer trust the anonymity of the country's banking system.

E. J. Dionne, a Saturn lover like myself (we have three of them), writes about the need to maintain our domestic car industry, at least for a while (he is also very sad that Saturn is being cut loose by GM):

The unions have made enormous concessions, and the dealers are likely to do the same. But how hard a bargain will the banks and the bondholders drive? Will banks being subsidized by the federal government make life difficult for car companies being subsidized by the same government? Do the taxpayers get nailed at both ends?Free-market advocates would argue that such agonizing complexities inevitably arise once the government gets deeply enmeshed in the workings of the market. True, but I'd still rather accept the messiness involved in giving Detroit one more chance than risk the human and financial costs of letting the domestic auto industry implode. Sometimes, the market's "creative destruction" is more destructive than creative.As for me, I've put my own money where my columnist mouth is. With my Saturn interred, I am now the proud owner of a 2009 Chevy Malibu LTZ. It is one of GM's comeback cars, and reviewers say it is thoroughly competitive with the Honda Accord and Toyota Camry.I'll never feel quite the same way about the Malibu as I did about my Saturn, even though the LTZ is a much nicer car. But as long as GM stays unionized, I'll drive with a clear conscience.The next car I hope to buy is a plug-in hybrid. I'm holding out until then.

This op-ed column in the NYT by Philip Taubman on nuclear arms reduction is a welcome sign that we might once again be moving in that direction.

One provocative road map for moving away from nuclear deterrence comes from a quartet of cold war leaders — Henry Kissinger and George Shultz, former secretaries of state; William Perry, a former secretary of defense; and Sam Nunn, a former chairman of the Senate Armed Services Committee. Two years ago, they bridged their ideological differences to call, improbably, for the abolition of nuclear weapons, and they proposed a series of interim steps to reduce nuclear dangers, stop the spread of bomb-making materials and lay the groundwork for a nuclear-free world.

Wednesday, February 18, 2009

The Obama Team has a big problem on its hands; Timothy Geithner. Geithner was picked as Treasury Secretary because he is a trusted ally of the big banks and has a good grasp of the intricacies of the financial system. The problem is that Geithner can't handle the public relations part of his job. His big debut in prime-time last Tuesday turned out to be a complete dud. He was thoroughly unconvincing and looked like a nervous teenager at a speech contest. He fizzled on stage for 25 minutes while the little red box in the corner of the TV screen--which shows the current Dow Jones Industrials--plummeted nearly 400 points. It was a total disaster and one that is sure to be repeated over and over as long as Geithner is at Treasury. Not everyone can be a charismatic orator like Obama and nothing short of a personality transplant will fix Geithner. He lacks gravitas and doesn't inspire confidence. That's a problem since, the administration's main objective is to restore public confidence and get people spending again. They're just shooting themselves in the foot by using him as their pitchman. Eventually, Geithner will either have to be tossed overboard or strapped to Obama like a papoose so he can share in the president's popularity. Otherwise he will continue to be a millstone.

In truth, Geithner did us all a big favor on Tuesday by exposing himself as a stooge of the banking industry. Now everyone can see that the banks are working the deal from the inside. Geithner has assembled a phalanx of Wall Street flim-flam men to fill out the roster at Treasury. His chief-of-staff is lobbyist from Goldman Sachs. The new deputy secretary of state is a former CEO of Citigroup. Another CFO from Citigroup is now assistant to the president, and deputy national security adviser for International Economic Affairs. And one of his deputies also came from Citigroup. One new member of the president's Economic Recovery Advisory Board comes from UBS, which is currently being investigated for helping rich clients evade taxes. The Obama White House is a beehive of big money guys and Wall Street speculators.In my more skeptical moments, I think like this. When I'm impressed by Obama and more hopeful, I don't. In any case, I really don't trust big bankers after what they've done to us. And it really is their fault, because they (and their friends at the Fed and Treasury) controlled the credit spigot, and they let it run and run and run....and they made millions and millions and millions of dollars....and now, it's ruined the house. Fire them all, confiscate the bulk of their ill-gotten gains, and start over.

In recent days, the national trend has moved towards nationalization of the banks. First you had Lindsay Graham support it. Then today Alan Greenspan came out in support of it. Its important to remember how amazing this would have seemed even one month ago: that you would have "the godfather of capitalism" and dyed in the wool conservatives calling for bank nationalization! Its starting to seem like everybody is begging the Obama administration to nationalize, and they are reportedly moving in that direction. So now, my guess is, Obama will decide to do what the national consensus is calling for. How easy for him! So the question is, was Obama lucky or smart to end up in this situation?

From the negative reviews of Geithner's original bailout proposal, many would say "lucky." After all, Geithner's plan was vague, and pro-bank, and proved that they don't know what they are doing!!

But, maybe, just maybe, the actual purpose of Geithner's vague rollout was to stimulate the national discussion that has got us to this exact point. Imagine if Obama had come out strongly in support of nationalization. He would have been tarred as a socialist, and all of the arguments against nationalization would have been mobilized and heard loudly. Instead, Obama laid out the pros and cons, and let the national debate take its course. It ended up the only place it could end up--in favor of nationalization. So now, all Obama has to do is step in and do the "right" thing that everyone wants him to do. He can lead from the center, rather than push from the fringe.

So lucky or smart? I'm going with smart. This is how he operated time and time again in the campaign, and I see no reason to doubt that he saw how this would play out, and calibrated his strategy accordingly.

Pat Robertson said the following during an interview, when asked about Rush Limbaugh's comment that he hoped Obama would fail as President:

That was a terrible thing to say. I mean, he's the president of all the country. If he succeeds, the country succeeds. And if he doesn't, it hurts us all. Anybody who would pull against our president is not exactly thinking rationally.Or as a Christian.

All Barack Obama wanted was to be president. He may have to become an auto executive, a banker, a mortgage broker and who knows what else before this crisis is done. Lesson: one extreme of economic privatization and deregulation (Reaganomics and Neo-liberalism) leads by necessity to the other extreme, as stated above by the estimable Gene Robinson. A warning to us to find the 'middle way' between the two extremes, as first recommended by the greatest philosopher ever, Aristotle, a few thousands years ago.

Some analysts say over-capacity is so rampant that it will stymie government efforts to unfreeze credit markets. Banks have little reason to lend not only because they still have bad debt on their books but also because businesses don't have a pressing need to expand, said Mike Shedlock, an investment analyst with Seattle-based Sitka Pacific who writes the popular blog Mish's Global Economic Trend Analysis. "What is it that we need more of?" Shedlock said. "Do we need more Wal-Marts, more Pizza Huts, more nail salons?" Surely there is a lessen here for us. For growth to be good, it must be sustainable. That is the only kind of growth that will not result in an eventual bust and cause all kinds of misery and suffering.

Okay, Caretaker, you have really been dissed by the likes of David Brooks in today's NYT.

You may not know it to look at them, but urban planners are human and have dreams. One dream many share is that Americans will give up their love affair with suburban sprawl and will rediscover denser, more environmentally friendly, less auto-dependent ways of living....America will, in short, finally begin to look a little more like Amsterdam.

Well, Amsterdam is a wonderful city, but Americans never seem to want to live there. And even now, in this moment of chastening pain, they don’t seem to want the Dutch option.

“My job is to help the country take the long view — to make sure that not only are we getting out of this immediate fix, but we’re not repeating the same cycle of bubble and bust over and over again; that we’re not having the same energy conversation 30 years from now that we had 30 years ago; that we’re not talking about the state of our schools in the exact same ways we were talking about them in the 1980s; and that at some point we say, ‘You know what? If we’re spending more money per-capita on health care than any nation on earth, then you’d think everybody would have coverage and we would see lower costs for average consumers, and we’d have better outcomes.’ "

Congressman Peter DeFazio of Oregon, interviewed on NPR, explained why he had voted against Obama's stimulus plan. He said that he was fundamentally opposed to tax cuts from borrowed money (which in the end constituted 45% of the bill), while spending for projects that benefit the future generations were sensible from borrowed funds. He used the example of a water system in his mountain district built during the last depression that had benefited four generations.

Reports say that Cheney and Bush weren't getting along that well toward the end:

In the waning days of the Bush administration, Vice President Dick Cheney launched a last-ditch campaign to persuade his boss to pardon Lewis (Scooter) Libby - and was furious when President George W. Bush wouldn't budge. In multiple conversations, both in person and over the telephone, Cheney tried to get Bush to change his mind. Libby was convicted of perjury and obstruction of justice in the federal probe of who leaked covert CIA operative Valerie Plame's identity to the press. The latest Libby flap has injected fresh strains in a relationship that had become more businesslike than warm in recent years. Ten days before leaving office, Bush hailed Cheney as "a fabulous vice president." About the same time, however, an official who has worked closely with both men mused that the relationship "isn't what it was" when Bush tapped Cheney as his running mate in 2000. "It's been a long, long time since I've heard the President say, 'Run that by the vice president's office.' You used to hear that all the time."

This is fascinating, and it tells me that Bush came in the end to see Cheney for what he was: the primary source of a lot of his bad decisions and troubles.

Monday, February 16, 2009

James Kunstler's most recent version of what happened over the last 35 years (this is long but well-worth reading):

A creepy feeling ushers in President's Day this year as the suspicion grows that nobody in charge of anything knows what what to do next. The usual yin-yang consensus has solidified in congress along party lines, both equally idiotic. In the White House, Mr. Obama is under excruciating pressure to "do something" as systems unravel and economies augur into darkness. Amid all the anxiety and raging cluelessness, one thing is clear: we're doing everything possible to evade reality. The reality we can't face is that one way of life is over and a new one is waiting to be born. It's been waiting, really, since the early 1970s, when God whacked the USA upside its head to announce that we'd outgrown our once-stupendous domestic supply of oil. I remember those fervid months following the OPEC oil embargo of 1973 (I covered the story as a young newspaper reporter.) The basic message was this: from now on we'll be running this show on other people's oil so we better start doing things differently. Back then, the not-yet-lost-in-a-fog-of-greed Baby Boom generation rolled up its tie-dyed sleeves and got to work doing a lot of forward-looking things: micro hydro-electric, passive solar houses, rural homesteading, the next generation of public transit (BART, the D.C. Metro), the first wave of urban gentrification.... Then, in 1979, the Ayatollah tossed out the Shah of Iran, we got another dose of oil problems, and a year later, President Jimmy Carter's clear-eyed view of the oil situation as "the moral equivalent of war" got overturned in favor of Ronald Reagan's dreadful Hollywood nostalgia projector. As usual in times of severe social stress, the public got delusional. Mr. Reagan was very lucky. During his tenure, two of the last great non-OPEC oil discoveries came into full production -- Prudhoe Bay, Alaska and the North Sea -- and took the leverage away from the Islamic oil nations who had been making us miserable with their threats, embargos, price-jackings, and hostage-takings. Americans drew the false conclusion that Ronald Reagan was an economic genius (a similar thing happened in Great Britain with Margaret Thatcherism). The price of oil went down steeply while they were in office. Britain could kick back and enjoy it's last remaining industry, banking, on a majestic cushion of energy resources. The USA resumed its major post-war industry: suburban sprawl building. Reaganism got elevated to the status of a religion, though it was little more than a twisted version of Eisenhower-on-steroids. Under Reagan, WalMart embarked on its campaign to destroy every main street economy in the nation. The Baby Boomers came back from the land, clipped their pony tails, discovered venture capital, real estate investment trusts, securitization of "consumer" debt, and the Hamptons. Greed was good. (No, really....)The first President Bush's Gulf War jolted the oil markets briefly, but Saudi Arabia was demonstrably on our side in that conflict, while the non-OPEC oil supply was goosed up by production from Mexico's giant Cantarell field. The slight economic shudder caused by the Gulf War was enough, though, to unseat Bush Number One in favor of the Boomer Bill Clinton. A puzzling figure in many ways, articulate and magnetic, Bill Clinton was hardly a reformer, surely not in terms of the national lifestyle. He was in so many ways an exemplar of it. He'd been governor of WalMart's home state (and his wife sat on its board of directors). He was a pure product of the New South, the sunbelt, with its economy literally driven by everything connected to cars -- new suburbs, malls, fast food huts, Nascar. He wasn't about to pull a Jimmy Carter and try to prepare the people for some harsh realities.Baby Boomer greed went into overdrive during the Clinton years as the former hippies hit their mid-life career strides, epitomized in billionaire-worship and the eventual money-grubbing book deals both Clintons made on departure. Does anyone remember Mr. Clinton saying, even once, that an economy based on suburban sprawl building and car dependency might not be such a good thing? Of course not. Under Clinton, the SUV became our new national bird. The price of oil flat-out crashed while Clinton was in office, sinking to the $10-a-barrel range by the time he handed over the White House keys to Bush Number Two.He has a lot more to say about Bush and Obama, that's right on target and that you need to go read (be sure to scroll down far enough). Okay, James, I think you're right. So what is the solution?

As I've said more than once, I believe this basically honest and intelligent president will have to take on the role of the nation's hand-holding camp counselor or school teacher. When the time comes that he assumes this role, I think he'll do it pretty well, even though great pain and misery will be abroad in this land. That's it? Oh. My. G....

In a very insightful and helpful column about Japan's economy, Robert Samuelson ends with this challenge for the American economy:

Since the early 1980s, American economic growth has depended on a steady rise in consumer spending supported by more debt and increasing asset prices (stocks, homes). Just as the mid-1980s signaled the end of Japan's export-led growth, the present U.S. slump signals the end of upbeat, consumption-led growth. But its legacy is an overbuilt and overemployed consumption sector, from car dealers to malls. The question is whether our system is adaptive enough to create new sources of growth to fill the void left by retreating shoppers. I think Obama wants to go there, with alternative energy sources and the accompanying technological innovations that could be shared with the world. But will the political situation let him do it, including the very provocative step of making carbon-based fuels more expensive? That's the big question.

E.J. Dionne's column in the WaPo today is a summary of an interview that Obama gave to columnists aboard Air Force One a few days ago. It once again demonstrates Obama's strategic and visionary approach to everything. It also highlights his pragmatism and experimentalism. This gives me hope that he will finally realize that the Summers/Geithner approach to the financial crisis is not going to deal with the real problem that the Clintonian neo-liberalism has caused. Neo-liberalism is going to have to be seriously modified, and the question is whether the gang of neo-Rubinites around Obama are the ones to do it. I don't think they are, but only time will tell.

If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom.

Here's my take on that. It wasn't WWII that brought us out of the depression, so much as it was the fact that WWII destroyed virtually every other major industrial nation and then we had the whole planet to ourselves. Why wouldn't our economy have rebounded when we had no competition?

But that isn't going to happen again. So large public works is not the solution at all, it's just a stop-gap measure that may or may not help, depending upon whether others will loan us the money to do it.

What we're going to have to do is go back to square one, become a creative, manufacturing (of what others want to buy) economy again. If we don't, then we're just going to have to get used to being basically poor again, like we're were before the 20th century.

Poverty is the normal state of affairs for humanity through history, unless you build something others want to buy. (I will grant you that abundant oil energy and technology really help here). We have no built-in right to wealth that guarantees that America will always be affluent.

By now everyone knows the sad tale of Bernard Madoff’s duped investors. They looked at their statements and thought they were rich. But then, one day, they discovered to their horror that their supposed wealth was a figment of someone else’s imagination.Unfortunately, that’s a pretty good metaphor for what happened to America as a whole in the first decade of the 21st century.

Last week the Federal Reserve released the results of the latest Survey of Consumer Finances, a triennial report on the assets and liabilities of American households. The bottom line is that there has been basically no wealth creation at all since the turn of the millennium: the net worth of the average American household, adjusted for inflation, is lower now than it was in 2001.

At one level this should come as no surprise. For most of the last decade America was a nation of borrowers and spenders, not savers. The personal savings rate dropped from 9 percent in the 1980s to 5 percent in the 1990s, to just 0.6 percent from 2005 to 2007, and household debt grew much faster than personal income. Why should we have expected our net worth to go up?So now we’re in trouble — deeper trouble, I think, than most people realize even now. And I’m not just talking about the dwindling band of forecasters who still insist that the economy will snap back any day now.

For this is a broad-based mess. Everyone talks about the problems of the banks, which are indeed in even worse shape than the rest of the system. But the banks aren’t the only players with too much debt and too few assets; the same description applies to the private sector as a whole.

This is the bottom line of our situation, that needs to be accepted. Without this acceptance (kind of like an alcoholic saying before the AA meeting, "My name is Joe and I'm an alcoholic"), nothing fundamentally will change.

According to the Audubon Society, data from the past 40 years of the annual Christmas Bird Count — a three-week census of American bird populations — shows a striking northward movement among a majority of species. This is not just a movement of individuals. It’s the migration of an entire population.

The boreal chickadee has moved 280 miles north, almost out of the range of the lower 48 states. The marbled murrelet, a seabird that breeds inland, has moved 360 miles north. The wild turkey has gone about 400. Climate change just a speculative, fanciful theory? You're a numbskull, literally. Why don't you join Sam Donaldson in retirement!

Now, with little fanfare, the 74-year-old newsman is retiring from full-time work next week. "Some people leave the business bitter, feeling they've been cast out, or they hang on too long," he says. "And I don't ever want to get in that position."

Even more difficult will be the politics and economics of fixing the banking system. A surprisingly broad consensus of experts agrees that sooner or later, government will need to take the large banks into receivership. And better to do it sooner. The money-center banks are insolvent, to the tune of somewhere between one and two trillion dollars. Treasury Secretary Tim Geithner's strategy is to disguise this reality, in the hope that "private capital" - meaning hedge funds and private equity companies - can be enticed into buying toxic securities, and getting them off the books of banks. Geithner even proposes to have the Federal Reserve lend them the money.But Geithner has not solved the problem of how to price these toxic assets. And unless he proposes to further subsidize speculative investments by hedge funds, the problem is insoluble. The longer government delays recognizing the insolvency of the banks and the need for a full government takeover, the longer the credit system stays frozen and the deeper the toll on the real economy.

Geithner is still operating according to the playbook of former Treasury Secretary Henry Paulson, who lurched from one failure to another. Geither made the transition from junior member of Paulson's team to senior adviser to Obama. But he has not revised his understanding of the problem. The time when the old banking system could just be propped up with more public money or cheap interest rates is long past.

Obama is being too Clintonian in all this. Too wonky and not wise enough. Come on, Barack! Use that superior judgment that God gave you, or at least I thought he gave you. Get some better economic policy advisors, or you're going to be politically up a creek without a paddle. And then Boobus Americanus will give the Republicans another chance, and then we will be totally screwed.

Or is that just our destiny, the providential consequence of our sins?

Chu recently told the Los Angeles Times that global warming might melt 90 percent of California's snowpack, which stores much of the water needed for agriculture. This, Chu said, would mean "no more agriculture in California," the nation's leading food producer. Chu added: "I don't actually see how they can keep their cities going."No more lettuce for Los Angeles? Chu likes predictions, so here is another: Nine decades hence, our great-great-grandchildren will add the disappearance of California artichokes to the list of predicted planetary calamities that did not happen. Global cooling recently joined that lengthening list. How nice. It's not like there isn't evidence here (polar ice cap and glaciers worldwide disappearing!!!!!). Unfortunately, this is a case of wishful thinking, as if the world is so big and we humans are so small that, surely, we couldn't accomplish this.

It is a miracle, is it not, that we haven't blown the world up with nuclear weapons. We could have, and we still might. I've been living with that nightmare all my life.

So why would someone with the intelligence and thoughtfulness of George Will make fun of global warming? Because it's too horrible to contemplate? Because he lives all his life in an artificially generated environment of heat and cold in Washington, DC and is never out in real nature? Because he really doesn't like science? Who knows. But it is a sad thing and one more reason not to take his brand of conservatism seriously.

In general, I think George Will and people like him are having a real problem accepting the reality that virtually everything they have argued for over the last 30 years is wrong. So they play make-believe instead.

This idea of nationalizing banks is not comfortable," said Sen. Lindsey Graham (R-SC). "But I think we've got so many toxic assets spread throughout the banking and financial community, throughout the world, that we're going to have to do something that no one ever envisioned a year ago, no one likes. To me, banking and housing are the root cause of this problem. I'm very much afraid any program to salvage the banks is going to require the government... I would not take off the idea of nationalizing the banks."

Sen. Chuck Shumer, Democrat of New York:

"I would not be for nationalizing," said the New York Senator, whose constituency includes the epicenter of the U.S. banking industry. "I don't think government is good at making these decisions."

My priorities for the rest of the year. Number one is to get the right structure for the successor to TARP; spending the $300-some billion that has already been authorized as wisely as possible, and injecting transparency and trust into the financial system. Having a housing program that provides relief to people who are at risk of losing their homes. Financial regulations that ensure that the crisis doesn't happen again. A innovative and aggressive push for health care reform that focuses not just on access but also on costs, and trying to just provide relief to working families. And a push for an energy policy that puts us on a path to sustainability. Sounds good to me.

Saturday, February 14, 2009

Huffington Post reports that Joe Lieberman played a pivotal role in getting Republican Senators on board the stimulus package:

While national attention has been heaped on Collins and Nelson, the hidden story of the stimulus negotiations is the role played by Lieberman - a man only weeks removed from a vote that could have cast him out of the Democratic caucus.

The successful passage of the stimulus began with Obama's decision to pardon Lieberman for the sin of campaigning for Sen. John McCain (R-Ariz.) during the presidential election. Lieberman initially stayed at the edge of negotiations, but as they dragged on, he inserted himself more forcefully, leveraging the close relationships he has with Republicans - after all, they asked him to join them - to peel away a few crucial votes.

"He does have a solid relationship" with Republicans, said Nelson. "He's been here quite a long time, so he and Senator Specter have been here together the longest of the group."

Bipartisanship means nothing if it is only ever respected by one party. The GOP is borderline autistic in its understanding of the necessary to-and-fro of democratic government. Or rather: its ideological nature prevents it from engaging in the actual tasks of pragmatic government. Or from seriously thinking of the long-term national interest rather than the short-term partisan one.

One of the great public men of our time, Fareed Zakaria, writes in Newsweek:

The legendary editor of The New Republic, Michael Kinsley, once held a "Boring Headline Contest" and decided that the winner was "Worthwhile Canadian Initiative." Twenty-two years later, the magazine was rescued from its economic troubles by a Canadian media company, which should have taught us Americans to be a bit more humble. Now there is even more striking evidence of Canada's virtues. Guess which country, alone in the industrialized world, has not faced a single bank failure, calls for bailouts or government intervention in the financial or mortgage sectors. Yup, it's Canada. In 2008, the WorldEconomic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th.So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1-compared with U.S. banks at 26 to 1 and European banks at afrightening 61 to 1. Partly this reflects Canada's more risk-averse business culture, but it is also a product of old-fashioned rules on banking.Even with the recent election, it still may be time to move north of the border.

But in parceling out our stimulus money, shouldn't the government direct most of it toward those who will really need to use it right away, whether the disbursement is done by payroll tax cuts, gift cards, unemployment insurance or any other device? Breaking out of the population the neediest segment may not be easy, but nothing is easy in an economy that is, well, breaking down.This is why tax cuts of the Republican variety are a complete farce and just another goodie given to their primary constituency, the rich and well-to-do.

The Beltway centrist crowd is obsessed with the non-sensical notion that in order to demonstrate his bipartisan bona fides, a president should nominate members of the other party to serve in his cabinet. Even though Republican presidents never seem to succumb to this pressure, Democratic presidents always do. That's why Obama nominated Republican Senator Judd Gregg to be his Commerce Secretary, a move that, not surprisingly, didn't end up working out too well. I'm all for bipartisanship in certain contexts, but the reality is that there are fundamental ideological and policy differences between the Republican and Democratic parties. Consequently, if you nominate a Republican to carry out a Democratic president's agenda in an area where the two parties have fundamental disagreements, the result is never going to be a good one.I think it's important for Obama to continue to appear respectful and bipartisan in his general governing approach, if for no other reason than to provide a contrast with the never-ending immaturity and childishness of the GOP. But the best way to do that is by sitting down and talking to Republicans, not putting them in charge of various executive branch departments.